Astral Foods, SA’s biggest poultry producer, said on Thursday that “extraordinary high” feed input costs would tear into its profits in the six months to end-March, sending its shares crashing as much as 18%, the biggest fall since the company went public in 2001.
Astral, like many other food producers, is grappling with the fallout from Russia’s invasion of Ukraine earlier in 2022, which sent international grain prices soaring. Feed costs, mainly consisting of maize and soya, make up 70% of the total cost to produce a broiler.
To mitigate the pressure on its margins, the company intimated that it would have to further increase prices.
“The group’s broiler operations are not able to fully recover record high feed input costs through the selling price of poultry,” Astral said in a trading update, which reflects on the year to end-September, as well as the next six months.
Its profits for the year will more than double from the low base of the prior matching period, but the outlook for the subsequent six months is particularly weak.
“Astral Foods is ‘subsidising’ the record high input costs in poultry selling prices to both its customer base and the consumer. This scenario cannot be sustained and will unfortunately lead to further poultry selling price inflation.”
Astral is also dealing with high energy costs and was forced to cut production in October to manage the record bouts of scheduled power cuts by Eskom.
“This writing was on the wall as far back as July this year. I wrote a detailed series of articles warning about the soaring prices of input costs, namely maize and soya to underlying production costs of Astral Foods,” said Anthony Clark, independent analyst at SmallTalkDaily.
“If you factor in load-shedding, the cost of diesel and increased costs of supply chains and logistics as well as processing, something had to give.”
Its 2023 financial year will also be blighted by the delay in the implementation of anti-dumping duties by the government, as well as water supply disruptions.
Astral, which slaughters 6-million chickens a week, faced such severe power and water cuts that it hauled the Lekwa municipality in Mpumalanga to the high court in 2020. In April 2021, it won a judgment that forced the municipality to draw up a financial plan detailing Eskom repayments and financial management.
Source: Business Day